Economy of Sweden

The Swedish economy is a developed diverse economy, aided by timber and iron ore. These constitute the resource base of an economy oriented toward foreign trade. The main industries include cars, international communications, pharmaceuticals and forestry.

Because Sweden is in fact a neutral country; during the post world war 2, Sweden did not have to rebuild their economic base, banking system, and country as a whole. Sweden has achieved second to none standard of living, under a mixed system of high-tech markets and welfare benefits. Sweden has the second highest total tax revenue behind Denmark, as a share of the country's income. As of 2007, total tax revenue was 47.8% of GDP, down from 49.1% 2006.

History

In the 19th century Sweden evolved from a largely agricultural economy into the beginnings of an industrialized, urbanized country. Poverty was still widespread in sections of the population. However, incomes were sufficiently high to finance emigration to distant places, prompting a large portion of the country to leave, especially to the USA.

Economic reforms and the creation of a modern economic system, banks and corporations were enacted during the latter half of the 19th century. By the 1930s, Sweden had one of Europe's highest standards of living. Sweden declared itself neutral during both world wars, thereby avoiding much physical destruction like several other neutral countries.

The post-war boom propelled Sweden to greater economic prosperity, putting the country in third place in per capita GDP rankings by 1970. Beginning in the 1970s and culminating with the deep recession of the early 1990s, Swedish standards of living developed less favorably than many other industrialized countries. Since the mid 1990s the economic performance has improved.

In 2006, Sweden had the world's ninth highest GDP per capita in nominal terms and was in 14th place in PPP terms (2009 figures).

Crisis of the 1990s

Sweden has had a unique economic model in the post-World War II era, characterized by close cooperation between the government, labour unions and corporations. The Swedish economy has extensive and universal social benefits funded by high taxes, close to 50% of GDP. In the 1980s, a real estate and financial bubble formed, driven by a rapid increase in lending. A restructuring of the tax system, in order to emphasize low inflation combined with an international economic slowdown in the early 1990s, caused the bubble to burst. Between 1990 and 1993 GDP went down by 5% and unemployment skyrocketed, causing the worst economic crisis in Sweden since the 1930s. In 1992 there was a run on the currency, the central bank briefly jacking up interest to 500% in an unsuccessful effort to defend the currency's fixed exchange rate.

 Total employment fell by almost 10% during the crisis.

A real estate boom ended in a bust. The government took over nearly a quarter of banking assets at a cost of about 4% of the nation's GDP. This was known colloquially, as the "Stockholm Solution". The United States Federal Reserve remarked in 2007, that "In the early 1970s, Sweden had one of the highest income levels in Europe; today, its lead has all but disappeared... So, even well-managed financial crises don't really have a happy ending."

The welfare system that had been growing rapidly since the 1970s couldn't be sustained with a falling GDP, lower employment and larger welfare payments. In 1994 the government budget deficit exceeded 15% of GDP. The response of the government was to cut spending and institute a multitude of reforms to improve Sweden's competitiveness. When the international economic outlook improved combined with a rapid growth in the IT sector, which Sweden was well positioned to capitalize on, the country was able to emerge from the crisis

The crisis of the 1990s was by some viewed as the end of the much buzzed welfare model called "Svenska modellen", literally The Swedish Model, as it proved that governmental spending at the levels previously experienced in Sweden was not long term sustainable. Much of the Swedish Model's acclaimed advantages actually had to be viewed as a result of the post WWII special situation, which left Sweden untouched when competitors' economies were in pieces.

However, the reforms enacted during the 1990s seem to have created a model in which extensive welfare benefits can be maintained in a global economy.

Contemporary economy

Real GDP growth in Sweden 1996-2006.

Sweden is an export-oriented mixed economy featuring a modern distribution system, excellent internal and external communications, and a skilled labor force. Timber, hydropower and iron ore constitute the resource base of an economy heavily oriented toward foreign trade. Sweden's engineering sector accounts for 50% of output and exports. Telecommunications, the automotive industry and the pharmaceutical industries are also of great importance. Agriculture accounts for 2 percent of GDP and employment.

The 20 largest Sweden-registered companies by turnover in 2007 were Volvo, Ericsson, Vattenfall, Skanska, Sony Ericsson Mobile Communications AB, Svenska Cellulosa Aktiebolaget, Electrolux, Volvo Personvagnar, TeliaSonera, Sandvik, Scania, ICA, Hennes & Mauritz, Nordea, Preem, Atlas Copco, Securitas, Nordstjernan and SKF. Sweden's industry is overwhelmingly in private control; unlike some other industrialized Western countries, such as Austria and Italy, state owned enterprises were always of minor importance.

Some 4.5 million residents are working, out of which around a third with tertiary education. GDP per hour worked is the world's 9th highest at 31 USD in 2006, compared to 22 USD in Spain and 35 USD in United States. According to OECD, deregulation, globalization, and technology sector growth have been key productivity drivers. GDP per hour worked is growing 2½ per cent a year for the economy as a whole and trade-terms-balanced productivity growth 2%. Sweden is a world leader in privatized pensions and pension funding problems are small compared to many other Western European countries. Swedish labor market has become more flexible, but it still has some widely acknowledged problems. The typical worker receives only 40% of his income after the tax wedge. The slowly declining overall taxation, 51.1% of GDP in 2007, is still nearly double of that in the United States or Ireland. Civil servants amount to a third of Swedish workforce, multiple times the proportion in many other countries. Overall, GDP growth has been fast since reforms in the early 1990s, especially in manufacturing.

World Economic Forum 2008 competitiveness index ranks Sweden 4th most competitive, behind Denmark. The Index of Economic Freedom 2008 ranks Sweden the 27th most free out of 162 countries, or 14th out of 41 European countries. Sweden ranked 9th in the IMD Competitiveness Yearbook 2008, scoring high in private sector efficiency. According to the book, The Flight of the Creative Class, by the U.S. urban studies, Professor Richard Florida of University of Toronto, Sweden is ranked as having the best creativity in Europe for business and is predicted to become a talent magnet for the world’s most purposeful workers. The book compiled an index to measure the kind of creativity it claims is most useful to business — talent, technology and tolerance.Sweden's investment into research and development stood, in 2007, at over 3.5% of GDP. This is considerably higher than that of a number of MEDCs, including the United States, and is the largest among the OECD members.

Sweden rejected the Euro in a referendum in 2003, and Sweden maintains its own currency, the Swedish krona (SEK). The Swedish Riksbank—founded in 1668 and thus making it the oldest central bank in the world—is currently focusing on price stability with its inflation target of 2%. According to Economic Survey of Sweden 2007 by OECD, the average inflation in Sweden has been one of the lowest among European countries since the mid-1990s, largely because of deregulation and quick utilization of globalization.

The largest trade flows are with Germany, United States, Norway, United Kingdom, Denmark and Finland.

The Swedish economic picture has brightened significantly since the severe recession in the early 1990s. Growth has been strong in recent years, and even though the growth in the economy slackened between 2001 and 2003, the growth rate has picked up since with an average growth rate of 3.7% in the last three years. The long-run prospects for growth remain favorable. The inflation rate is low and stable, with projections for continued low levels over the next 2–3 years.

Since the mid-1990s the export sector has been booming, acting as the main engine for economic growth. Swedish exports also have proven to be surprisingly robust. A marked shift in the structure of the exports, where services, the IT industry, and telecommunications have taken over from traditional industries such as steel, paper and pulp, has made the Swedish export sector less vulnerable to international fluctuations. However, at the same time the Swedish industry has received less money for its exports while the import prices have gone up. During the period 1995-2003 the export prices were reduced by 4% at the same time as the import prices climbed by 11%. The net effect is that the Swedish terms-of-trade fell 13%.

Government

The government budget has improved dramatically from a record deficit of more than 12% of GDP in 1993. In the last decade, from 1998 to present, the government has run a surplus every year, except for 2003 and 2004. The surplus for 2007 is expected to be 138 billion ($20b) kronor. The new, strict budget process with spending ceilings set by parliament, and a constitutional change to an independent Central Bank, have greatly improved policy credibility. This can be seen in the long-term interest rate margin versus the Euro, which is negligible.

From the perspective of longer term fiscal sustainability, the long-awaited reform of old-age pensions entered into force in 1999. This entails a far more robust system vis-à-vis adverse demographic and economic trends, which should keep the ratio of total pension disbursements to the aggregate wage bill close to 20% in the decades ahead. Taken together, both fiscal consolidation and pension reform have brought public finances back on a sustainable footing. Gross public debt, which jumped from 43% of GDP in 1990 to 78% in 1994, stabilised around the middle of the 1990s and started to come down again more significantly beginning in 1999. In 2000 it fell below the key level of 60% and had declined to a level of 37% of GDP as of 2007.

Economic and monetary union

Current economic development reflects a quite remarkable improvement of the Swedish economy since the crisis in 1991-93, so that Sweden could easily qualify for membership in the third phase of the Economic and Monetary Union of the European Union, adopting the euro as its currency. In theory, by the rules of the EMU, Sweden is obliged to join, since the country has not obtained exception by any protocol or treaty (as opposed to Denmark and the United Kingdom). Nevertheless, the Swedish government decided in 1997 against joining the common currency from its start on 1 January 1999. This choice was implemented by exploiting a legal loophole, deliberately staying out of the European Exchange Rate Mechanism. This move is currently tolerated by the European Central Bank, which however has warned that this wouldn't be the case for newer EU members.

In the first years of the twenty-first century, a majority for joining emerged in the governing Social Democratic party, although the question was subject of heated debate, with leading personalities in the party on both sides. On 14 September 2003, a national referendum was held on the euro. A 56% majority of Swedes rejected the common currency, while 42% voted in favour of it. Currently no plans for a new referendum or parliamentary vote on the matter are being discussed, though it has been implied that another referendum may take place in around ten years.

Unemployment

In contrast with most other European countries, Sweden maintained an unemployment rate around 2% or 3% of the work force throughout the 1980s.[citation needed] This was, however, accompanied by high and accelerating inflation. It became evident that such low unemployment rates were not sustainable, and in the severe crisis of the early 1990s the rate increased to more than 8%. In 1996 the government set out a goal of reducing unemployment to 4% by 2000. During 2000 employment rose by 90,000 people, the greatest increase in 40 years, and the goal was reached in the autumn of 2000. The same autumn the government set out its new target: that 80% of the working age population will have a regular job by 2004. Some have expressed concern that meeting the employment target may come at a cost of too high a rate of wage increases hence increasing inflation. However, as of August 2006, roughly 5% of working age Swedes were unemployed, over the government-established goal. However, some of the people who cannot find work are put away in so-called "labour market political activities", referred to as "AMS-åtgärder".

According to Jan Edling, a former trade-unionist, the actual number of unemployed is far higher, and those figures are being suppressed by both the government and the Swedish Trade Union Confederation. In Edling's report he added that a further 3% of Swedes were occupied in state-organised job schemes, not in the private sector. He also claimed a further 700,000 Swedes are either on long-term sick leave or in early retirement. Edling asks how many of these people are in fact unemployed. According to his report, the "actual unemployment" rate hovers near 20%.= Some critics disagree with this concept of "actual" unemployment, also termed "broad unemployment", since they do not see e.g. students who rather want a job, people on sick leave and military conscripts as "unemployed".=

According to Swedish Statistics, unemployment in May 2009 was 9% in the general population and 30% amongst 15-25 years old.

Trade unions

Around eighty percent of the Swedish labour force is unionised. For most unions there is a counterpart employer's organization for businesses. The unions and employer organisations are independent of both the government and political parties, although the largest confederation of unions, the National Swedish Confederation of Trade Unions or LO (organising blue-collar workers), maintains close links to the largest political party, the Social Democrats. So close that after the election in 2006 and the resignation of the party leader Göran Persson, one of the strongest candidates for new party leader (and their candidate as Prime Minister) was the LO chairman Wanja Lundby-Wedin.

The unionisation rate among white-collar workers is exceptionally high in Sweden - almost as high as for blue-collar workers. There are two major confederations that organise professionals and other qualified employees: the Swedish Confederation of Professional Employees (Tjänstemännens Centralorganisation or TCO) and the Swedish Confederation of Professional Associations (Sveriges Akademikers Centralorganisation or SACO). They are both independent from Sweden's political parties and never endorse candidates for office in political elections.

There is no minimum wage that is required by legislation. Instead, minimum wage standards in different sectors are normally set by collective bargaining. Most labour contracts were re-negotiated during 2004, and call for wage increases of around seven percent over a three-year period.

Labor force

The traditionally low-wage differential has increased in recent years as a result of increased flexibility as the role of wage setting at the company level has strengthened somewhat. Still, Swedish unskilled employees are well-paid while well-educated Swedish employees are low-paid compared to those in competitor countries in Western Europe and USA. The average increases in real wages in recent years have been high by historical standards, in large part due to unforeseen price stability. Even so, nominal wages in recent years have been slightly above those in competitor countries. Thus, while private-sector wages rose by an average annual rate of 3.75% from 1998 to 2000 in Sweden, the comparable increase for the EU area was 1.75%. In the year 2000 the total labour force was around 4.4 million people.

Ongoing privatisations

The Swedish government has announced that it will privatise a number of wholly and partly state owned companies. "The income from these sales will be used to pay off the government debt and reduce the burden of debt for future generations. The Government's ambition is to sell companies to a value of SEK 200 billion during 2007-2010."

Apoteket - pharmaceuticals. To be partially sold when breaking up the state monopoly and opening the market to free competition. 

Nordea - bank. 19.5% owned by Swedish government.

OMX - stock exchange. Shares sold to Borse Dubai for 2.1 billion SEK.

Telia Sonera - telecom. 37.3% owned by the Swedish government. Hitherto SEK 18 billion worth of shares has been sold reducing state ownership from 45.3% to 37.3%.

SBAB - finance.

Vin & Sprit. Sold to Pernod Ricard for 5.626 billion Euro.

Vasakronan. Sold to AP-fastigheter for 4.3 billion Euro.

Gross regional product

Gross Regional Product per capita in thousands of Swedish crowns (2004)

The gross regional product differs from a top of 363 000 SEK in the capital Stockholm County, where much of the economic activity is centered, to 202 000 SEK in Södermanland County, with an average of 263 000 SEK for the whole country.

The extra regional figure refers to parts of the economic territory which cannot be attached directly to a single region, e.g. embassies and consulates.

Table showing GRP per capita

Rank County Total¹ Per capita² Share

1 Stockholm County 669 900 363 000 28.54%

2 Västra Götaland County 386 538 257 000 16.47%

3 Västernorrland County 61 540 251 000 2.62%

4 Kronoberg County 43 256 245 000 1.84%

5 Skåne County 278 254 244 000 11.85%

6 Jönköping County 79 761 243 000 3.40%

jt. 7 Östergötland County 97 387 236 000 4.15%

jt. 7 Norrbotten County 59 875 236 000 2.55%

9 Uppsala County 69 631 234 000 2.97%

10 Västmanland County 60 287 233 000 2.57%

11 Blekinge County 34 566 231 000 1.47%

12 Kalmar County 53 381 227 000 2.27%

13 Dalarna County 62 604 226 000 2.67%

14 Örebro County 61 203 224 000 2.61%

15 Halland County 61 339 221 000 2.61%

jt. 16 Gävleborg County 60 417 218 000 2.57%

jt. 16 Västerbotten County 55 534 218 000 2.37%

18 Värmland County 59 497 217 000 2.53%

19 Jämtland County 27 628 215 000 1.18%

20 Gotland County 12 154 212 000 0.52%

21 Södermanland County 52 235 202 000 2.23%

Extra regional 413 0.02%

Total 2 347 400 263 000 100.00%

1/ Million SEK

2/ SEK

Source: Statistics Sweden (2004)

(source:wikipedia)